Adopting Employer

[401(k)athryn]

Company A and Company B are a controlled group.  Company A sponsors a 401(k) Plan.  Company B's employees are all  paid through Company A on W-2s and are included in the 401(k) Plan.  I know that Company B can co-adopt the plan, but are they required to do so?  It would seem to me that these employees, since paid by Company A, would be covered regardless of whether Company B adopts and may even be considered Company A employees.  This may come down to a "Who's the Employer?" question. 

I realize that there is no harm in Company B adopting the plan and I will recommend this, but I need to know if there is any reason that it would be required in order for these employees (who technically perform services for Company B even though paid by A) to be included in the plan.  Any thoughts?

 

[K2retire]

What does the plan say about leased employees? That answer could impact a situation like this.

[Flyboyjohn]

Sounds like the EEs are common law EEs of company B and company A is simply paying them as a common paymaster or some similar accommodation. I assume company B reimburses company A for the wages and benefits paid to company B employees.

Under these facts company B definitely needs to adopt the plan as an additional participating employer.

 

[401(k)athryn]

Thank you both!  I will have Company B adopt the plan.  Leased employees are excluded from the plan.

[Mike Preston]

To add a little fuel to the fire, if there are any employer contributions from B (matching contributions, profit sharing) B can't deduct unless a Plan Sponsor.

[401(k)athryn]

Thanks, Mike!  That is a good extra tidbit.